RESOURCES - I.I.I. Fact Sheet: Underinsurance

I.I.I. Fact Sheet: Underinsurance Recent Studies Show Americans Do Not Have Adequate Insurance Protection Against Losses from Natural Catastrophes A number of studies released in recent weeks found that people who live in areas that are at risk for flooding, earthquakes and other natural disasters are not protecting themselves with adequate insurance coverage. A Mason-Dixon poll released on May 16 reported that millions of American homeowners have not recently reviewed their homeowners insurance and believe—incorrectly—that they are automatically covered for flood damage. Furthemore, three studies—from the RAND Corporation, the Chubb Group of Insurance Companies, and the Insurance Information Network of California and the Fireman’s Fund Insurance Company—show that across a range of measures, there is a serious lack of sufficient coverage. These results demonstrate that many people do not have the right insurance coverage to protect their home and personal possessions from damage caused by natural disasters. NATIONWIDE LACK OF COMPREHENSIVE FLOOD INSURANCE Only 14 percent of the nation has flood insurance. Chubb’s research found that only 14 percent of Americans have flood insurance for their primary residence. Only half of the most vulnerable homes have flood insurance. The RAND study reveals that only half of homeowners in high flood-risk areas purchase federal flood insurance—and just 20 percent of homeowners in these areas buy it when not required to do so. This means that millions of families are living in high-risk areas without adequate insurance coverage. One third of American homeowners have not reviewed their homeowner’s insurance policy in more than three years. The Mason Dixon poll, conducted for the National Hurricane Survival Initiative, shows that millions of dollars worth of property value increases may not have been factored into homeowners’ current policies and are thus not adequately covered. Half of all American homeowners incorrectly believe they are automatically covered against flood. The Mason Dixon poll found that half of America’s homeowners think that their standard homeowners policies automatically cover flood, when in fact an additional flood policy is needed. DISASTER-PRONE AREAS ESPECIALLY UNPREPARED Katrina has not motivated widespread flood insurance participation. According to the National Flood Insurance Program, the widely publicized devastation caused by Hurricane Katrina has only led to a 6 percent increase in federal flood insurance participation. Growing coastal areas increasingly under protected. According to the National Oceanographic and Atmospheric Administration, more than 33 million people have moved to coastal counties since 1980—contributing to a population increase of 58 percent in the Southeast, 45 percent in the Gulf Coast, and 75 percent in the state of Florida alone. All told, nearly 30 percent of the total national population lives on the Gulf or Atlantic coasts, areas potentially in the path of another Katrina. Northeast, Midwest massively under covered. According to RAND, while 60 percent of homes within the federal government’s Special Flood Hazard Areas in the South and West have purchased the required insurance, only 20 to 30 percent of similarly flood-vulnerable homes in the Northeast and Midwest are covered. Especially risky for Northeast given high chance of ’06 storm. This is particularly dangerous now that experts say there is a 64 percent chance of a major hurricane striking the East Coast this year (Dr. William Gray, Colorado State University, December 6, 2005). Only 1 percent of non-flood zone homes are covered despite risk. The RAND study also illustrated that only 1 percent of homeowners living outside Special Flood Hazard Areas buy federal flood insurance, even though they can still be at risk for flooding. Low-cost National Flood Insurance Program coverage available to non-flood zone residents. Non-flood zone coverage can cost as little as $112 per year, making it highly affordable for many homeowners. One quarter of NFIP claims paid originate from non-Special Flood Hazard Areas. Of all claims paid by the federal flood insurance program, 25 percent are for policies in low-to moderate-risk communities. This means that millions of people who do not feel at risk of flooding may someday find themselves experiencing flood damage. Vast majority of Californians feel unprepared. In one of the nation’s most catastrophe-prone states, California, the IINC/Fireman’s Fund study found that only 22 percent of residents consider themselves prepared for a disaster.